What Can Be Done About the Threat Facing South Korean Travel Agencies?

As anybody who’s anybody will tell you, South Korea is the coolest place on Earth.

Its tech savvy and youthful super rich are being targeted by a growing number of luxury car makers and fashion brands, and its eccentric and addictive new youth culture is confirming what we suspected all along; South Korea is the world’s next big luxury hub. Which is why we’ve been so dismayed to learn about the closures of some major South Korean travel agencies in recent months.

So what’s happening?

“Many businesses in Korea are experiencing a tragic period,” says Blair Hong, CEO of T-Percent. “A few major companies have closed recently, which has been a real shock to the industry.” Ask Korean buyers and the finger always seems to point to online travel agencies (OTAs), like the ever-popular Agoda, as the greatest opponent for traditional travel agents: “We have seen an exponential increase over the past five years on OTA usage by the Korean traveller,” states Michael Ahn, Managing Director at Tailored Travel. “In addition, the travel research / planning / booking experience has become much more transparent and simpler due to the rise of travel start-ups that make it unnecessary for travellers to take the time to go through a traditional travel agent.”

Stuck in a vicious circle

The knock-on effect of this drop in demand is evident in the lack of R&D investment into the travel agency model. As Blair explains, “the biggest problem for travel agencies in Korea is that they’re cutting their profit for price competitiveness, so the chances for investing are really low.” It’s a vicious cycle. The resulting low profits mean low wages for employees and few chances for business ventures.

On top of this, as Es Shin, General Manager at Oui Tours, points out “most of the agencies closing recently are those specialising in honeymoons.” This is actually a reflection of the changing Korean demographic. As Es continues, “honeymoon couples were 300,000 some ten years ago in Korea but now they are under 230,000, according to statistics.”

But with change comes new opportunity

This comes at a time when the birth rate is also decreasing just as the nation has become an official “aged society,” which is defined by the United Nations as a society where those aged 65 or over exceed 14% of the total population. Not all is lost, however, “an increasing elderly generation means that the upper market is getting bigger too,” reassures Es.

There is, however, a general lack of awareness of agency affiliates in the country. In Korea, there are only “two members of Traveller Made and one member of Virtuoso (and that’s only been the case for the past two years).” As Blair highlights, there needs to be more consideration by the wider industry networks and alliances to open up membership to Korean agents, giving greater awareness to the region’s travel agent model.

With the traditional model under threat, most agents are now leaning towards new terminology – advisors, consultants, and even designers – and new ways of working. “We desperately need more attractive rates than the OTAs to be able to survive. This coupled with unique experiences and exclusive access can possibly be an avenue to attract more luxury Korean travellers by offering something that cannot be found on an OTA,” explains Michael.

Although the OTA phenomenon is indeed a threat, it is also very much an opportunity for agencies in Korea now, confirms Es. Regardless of the challenges in price competitiveness, investment and population, “the Korean high-end market is getting bigger and wider.” Travel designers “armoured with know-how and experience will be chosen” to handle the demands of the Korean luxury traveller.

Our Portfolio Director, Alison Gilmore, concludes, “This is a perfect opportunity and time for new Travel Designers to think of how they can add value through knowledge and the all-important personal touch. As we all know, nothing beats face to face. We are committed to doing everything we can to support the industry’s growth.”